Strategic Distribution Network

Lecture No. 04
Marketing flows in channels

Physical Possession

Ownership

Promotion

Negotiation Consumers
Industrial
Producers Wholesalers Retailers
Financing &
Household
Risking

Ordering

Payment

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Channel Structure
 A description of the channel structure
summarizes the types of members that are
in the channel, the intensity or number of
members of each type that coexist in the
market, and the number of distinct
channels that coexist in the market

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Channel Design Challenges
 Level of intensity / coverage??
 Channel Types
 Retail
 Kiosk
 Kiryana
 General Store
 Pan Shop
 Grocery
 Pharmacy
 Dual distribution / Concurrent distribution
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Channel Intensity
 The more intensively a manufacturer
distributes its brand in a market, the less
the manufacturer can influence how
channel members perform marketing
channel flows

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Why more coverage is better for
manufacturers of Convenience Goods
 Low-involvement purchases
 Buyers considers to be low-risk and minor
 FMCG market share is disproportionately
related to distribution coverage
 Small retailers stock up only the top few
brands
 Higher the market share higher the
chances that small retailers will stock up
 Spiral phenomenon of “rich getting richer”
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Why downstream channel members
dislike intensive distribution
 Intensive distribution means that a channel
members competitors have the same
brand, thereby eroding the outlets
uniqueness
 When the market is saturated – a channel
member cannot present the brand as a
reason to purchase –
 Inertia (hassle of going elsewhere)
 Price Cut leading to intrabrand price competition

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 There are rectification measures:
 Some channel members drop the brand
 A. discontinue the saturated brand and substituting
another that is less intensively distributed
 B. discontinue the entire product category if they

cannot find a satisfactory substitute brand AND THE

CATEGORY IS NOT ESSENTIAL
 C. may appear to carry a brand by offering nominal

stock and display but attempt to convert prospective

customers to a different brand once on site
• BAIT & SWITCH approach
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Free-Riding
 Legitimate retailer operations
 Manufacturer gets into active distribution
on web-other mediums
 Bulk of store traffic is window shoppers
and purchasing elsewhere
 Bait & Switch are costly propositions

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Can the manufacturer sustain intensive
distribution
 Contractual obligations – binding channel
members by paperwork and legal documentation
 Pull strategy to build brands – FMCG
 Resale price maintenance – RPM: it is
selectively allowed in few world markets – NOT
IN PAKISTAN
 Limit its market coverage as per market forces
 Channel Stuffing: loading up channel members with
more product that they can sell

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Channel conflicts
 1. Manufacturers want to blanket a trading area
with outlets, but the outlets prefer the reverse
 2. Downstream channel members prefer to have
multiple brands to offer in a category but
manufacturers prefer the reverse
 3. Manufacturers want downstream channel
members to support their brands vigorously and
take low margins, but channel members prefer
lower costs and higher margins

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1. The threat of complacency
 Intrabrand competition is low whenever
the distribution is too selective
 Channel members with the best intentions
will not be inclined to give their most
vigorous efforts to the brand
 Quasi
monopoly in distribution encourages
complacency

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2. The nature of the product category
 1. FMCG
 2. Small to medium electrical appliances
 3. High end boutique items
 Differentiate
between selective distribution and
poor coverage

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3. Brand strategy: Quality positioning and
Premium pricing
 Manufacturers must pay particular
attention to the image or reputation of the
channel member representing the brand
because this image will be imparted to
everything the channel member sells
 Shahnawaz Motors
 Shezan Foods Limited
 LVMH – Louis Vuitton Moet Hennessy has
never discounted in its history of 125 years
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4. Brand strategy – Target Market
 Some brand target a niche market, that is,
a narrow and specialized band of buyers
 Producers of brands targeting a narrow
spectrum of the market will target a narrow
spectrum of outlets. The more restricted
the target market, the more selective the
distribution
 Big & Tall Stores

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Bargaining for Influence Over Channel
Members
 The interventionist manufacturer would like to
manage their channels as they manage their
subsidiaries
 Reward Power
 Manufacture specific investments by Downstream
Channel Members
 Idiosyncratic knowledge: applications and features
 Unusual handling or storage: forklifters
 Brand specific parts: inventory
 Customer training: brand-specific instructions
 Mingling the identity of buyer & seller: Joint promotions
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Dependence Balancing: Trading Territory
Exclusivity for Category Exclusivity
 LVMH – Shoes and Bags marketed
separately in France
 Audi and VW – Separate dealers for both
ranges of cars

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CARRIER – RIDER RELATIONSHIPS

 Strong manufacturer with excess capacity

 Weak manufacturer with no capacity
 Mutual benefit in category complementation
 Tea and Milk
 Cigarettes and Matches

 Cross territory understandings

• B&H distributed by PMI in Canada

• Marlboro distributed by BAT in Africa

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 Thank You

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